FDC blames PSALM for nearly P1T in power sector debts

The power sector's nearly P1 trillion debt, from P807.8 billion before the implementation of the Electric Power Industry Reform Act in 2001, may be traced to the "awful performance" of state-owned Power Sector Assets and Liabilities Management Corp. (PSALM), the Freedom from Debt Coalition (FDC) claimed Thursday.   In a statement, FDC criticized PSALM and Energy officials for apparently going back on their word to withdraw PSALM's new applications for rate increases with the Energy Regulatory Commission.   The group urged lawmakers to ask Malacañang to review and renegotiate the supply contracts entered into by the National Power Corp. with local and foreign independents power producers (IPPs). These IPP contracts, according to FDC, remain the biggest reason why the country has the highest electricity rates in Asia.   Emmanuel R. Ledesma Jr., PSALM president and CEO, earlier denied that PSALM has promised the House Energy Committee to withdraw its new applications with the ERC. Ledesma insisted that what PSALM said was that it would extensively study the implications of the proposals coming from the House, including the review of the NPC-IPP contracts.   On the other hand, Energy Secretary Jose Rene Almendras said that they are hoping to bring the energy sector's total liabilities down once the universal charges (UCs) of PSALM is approved.   PSALM, an attached agency of the Energy Department, is seeking to recover P140 billion in stranded costs.   Once ERC approves PSALM’s rate increase, consumers will shoulder the additional burden of P0.39 per kilowatt-hour in the UCs under the generation charge alone for the next 15 years.   "PSALM's about-face only shows that it never took seriously the House Energy Committee's resolution to review the NPC-IPP contracts. Such a review will most certainly affect its applications for a new power rate increase," Reyes said.     PSALM is mandated under EPIRA or Republic Act No. 9136 to calculate the amount of stranded debt and stranded contract costs of NPC.   EPIRA defines stranded debts as any unpaid NPC financial obligation that has not been liquidated by the proceeds from the privatization of its assets. On the other hand, stranded contract costs are excess cost of electricity under eligible contracts over the actual selling price of the energy output of these contracts in the market. P17 per kWh difference   At the conclusion of the public hearing of the House Committee on Energy on Oct. 11, 2011, PSALM promised to recall its four petitions for increases in electricity rates, the FDC claimed.   During the hearing, the committee voted to ask the Aquino administration to renegotiate 19 power supply contracts entered into by the administration of then President Fidel V. Ramos with local and foreign IPPs.   PSALM's rate hike petitions include an amount that would be paid to IPPs.   Batangas Rep. Hermilando Mandanas, a former investment banker, said the IPPs already recouped their investments, and now make billions of pesos in profits since the Ramos administration.   PSALM’s Ferdinand Florendo said the agency will be guided by this collective sense of the House committee on energy for the withdrawal of the petitions.   It was also learned during the hearing that IPPs are supplying electricity at a much higher price than other power producers. The average cost of electricity supplied by IPPs is about P20 per kilowatt-hour, while other producers only charge P3 per kWh, according to an estimate of Energy officials who attended the hearing.   “The difference between the price of electricity supplied by these IPPs and the price of electricity supplied by other power producers is P17 per kilowatt-hour. Sadly, PSALM wants us, the consumers, to pay the P17 per kWh difference in our monthly bills,” said FDC’s Reyes.   As of end-2011, the total outstanding and contingent liabilities of the energy sector amounted to P915.19 billion, with P767.08-billion or 83.8 percent under PSALM.   The amount breaks down into P744.63 billion in outstanding liabilities and P22.45 billion contingent liabilities, even after 25 of 31 generation assets and the transmission grid of the government were sold and privatized.   The privatized National Transmission Corporation (TransCo) accounted for P98.48 billion or 10.8 percent of the debts, while the Napocor accounted for P49.63 billion or 5.4 percent.   “PSALM argues that if the ERC will junk its universal charge applications, their only option would be to secure more borrowings. Of course, this will increase the energy sector’s debt,” Reyes argued.   “And, if their debt increases, definitely they will file other rate hike petitions in order pay this debt. It is a vicious cycle. The government must end this cycle and address the roots of the problems — these onerous IPP contracts and the EPIRA itself,” Reyes added. — CMA/VS, GMA News